Zoey

Thanks Rather! I agree... I think that is probably my only option (unless I sell to the firm that I consult for, which was kind of the reason I was asking about the multiplier). Unfortunately I know another local TPA firm that I wouldn't approach to buy my business because of their shady practices and incompetency's, but if they caught wind, I also wouldn't put it past them to spread the word that I was selling.

Thanks, Rather... Yes, I have thought about that too. But as soon as someone asked me to sign an agreement, even before I signed, I would have a pretty good idea on what they are up to. And if I were to ask them to sign the agreement and they were to say, "I'm not interested", they would already know that I am looking to sell and they would have no responsibility to keep it confidential. I still may just be paranoid, but I've put a lot of blood sweat and tears building this business to risk it dwindling it down to nothing before selling.

Thanks Retired! I agree... that's the key... finding someone who specializes in TPA transactions. (It's kind of a niche business.) This company has offered 1.5x annual. I am also thinking about a cash balance plan for the proceeds, so I don't get hit with higher taxes. I was wondering if a cash balance plan is a possibility to delay taxes and then in say 5 years roll it to an IRA and take as needed? (I know enough about cash balance plans to be dangerous... lol. (DC plans are my world).) Funny thing is, one of my clients business is helping companies sell their businesses. I thought about asking them, but how do you do that without letting on that you are thinking about it and risk losing them as a client? How do you talk to other TPA firms without worrying that they will "spread the word", and risk losing clients? Maybe I'm just being paranoid.

Being a one-person TPA firm, I don't get vacations or any time off where I can completely unplug. I have been doing DC plans for 30 years and have been on my own for over 22 years and haven't had a true vacation since going out on my own. Now that I am approaching retirement age (5 years to go), I would like to be able to take some much needed time off (after tax season, of course). So I am looking to sell my business in 2025. (My book is very clean.) A few years ago, I also starting doing consulting for another TPA firm... helping them with their 401k plans. (Glutton for punishment, I know!) I told that TPA firm that I am looking to sell my book of business and they are very interested in buying it and want me to come work for them (remotely) for as long as I would like, or I am willing to. I have researched and researched selling a service business and the multipliers are all over the place... from 1x annual to 5x annual. They use the same software that I do, so the switch should be pretty seamless as far as that goes. And having no employees, there are no salaries for them to acquire... other than mine... and very little (if any) added expense, I would think. Has anyone recently purchased a one-person TPA firm such as mine? Or sold one? I was wondering what price to expect the offer to reasonably be and any details (such as how long did the seller work for the buyer after the sale, what period of time (if any) did the buyer spread the payment over, any customer retention provision, etc.). Of course I would have an attorney review the contract, but any assistance or insight you can give me would be greatly appreciated. Thanks!

Paul, that IS very well written. This was the first company purchased for this owner (so no controlled group yet), but he is looking to buy more soon. Very good point on the SIMPLE or SEP, and the auto-enroll! Thanks! And thanks for giving me more to think about... GAH!

CB, thank you for the cite. That's very helpful. I agree, and I had already mentioned the 100 participant rule. The problem with putting it back on the CPA is that they are telling the client that it is up to the TPA to determine, and we have told the client it's up to the CPA to determine. I too, do not want to make that determination... lol.

Thanks Bill. That was my initial thought as well. The CPA was asking, and at first I said that since it was an existing plan, I didn't think it wouldn't qualify. But then I started second guessing myself, since it's a new EIN applied to the plan. So I was hoping someone has run into this and could confirm (or rebut) our thinking. What if they buy a new company, start up a plan for that company, mirroring the current plan (same provisions, same investment company, same investment options, etc.)? And they do that for each and every company? Then I would think, yes for those companies... but at what cost? Would the credit be enough to offset the start up costs, separate valuations, combined testing, multiple 5500's, etc.? (I haven't done the math. To use Bill's term, I'm just spitballing here... lol.) And to take it even further... What if they set up new plans for all the new companies going forward, and then after the tax credit phases out, merge the plans into one plan as long as you don't have anti-cutback issues? (I just know this will be their next question.) TIA!

I apologize in advance for my ignorance, but I haven't had this question come up before. A company acquired an existing 401k plan (stock purchase). Can the new company get the tax credit (as if it were a new plan, new company)? There is a new EIN, new trustees, etc., but the same, existing plan. Also, this company plans to purchase other companies soon, but they plan to have them terminate their existing plans (if applicable), as part of the purchase agreement. They would then add them (as controlled groups) to the current plan. (Same 1 owner (and spouse) on all companies.) In those instances, can they get the tax deduction for each and every new company as they are established?

Maybe this is a simple question, but I'm having trouble wrapping my head around it and I've never had it asked before. I have a potentially new client who wants a 401(k) plan. They have union employees covered by a collective bargaining agreement. So the premise would be to exclude union employees from the plan, right? Except they also pay these union employees non-union income to cover their travel expenses. AND, one of the two owners works for the union as well. Part of me says, well that part of the income isn't covered under the collective bargaining agreement (or able to be deferred, matched, etc), so that income would automatically be included, and they would be eligible for the non-union plan for the income not covered in the agreement. But the (prototype) language that any employee covered by a collective bargaining agreement is excluded has me wondering. Your thoughts? (Thanks so much in advance!)

Wow...I am so very sorry I did not respond to these posts. I did not receive notification that I had more responses. I just came out here to search for something else and seen I had responses. Thank you all so much for your input. And I appreciate your explanation and links ESOP Guy. BG, a few thousand... 4-5K each year. And I have no idea if the gov't cross checks. That was my question too... how it wasn't caught.

Thanks Luke and BG5150. Both valid points.

Good point Bill, that most do not calculate the RMD either, unless it's an IRA. Thanks! Roll Tide!

Thanks CuseFan. I have seen some brokerage firms (depending on how they set up the account(s)), prepare 1099's. I had some plans with brokerage accounts in the past, where they did prepare the 1099's. I have another brokerage firm that I currently have mutual clients with, that also prepares them, but only on some of their accounts. I only found this out after I too, had prepared the 1099-R for the plan...ugh. But you are right, most do not. So, when I am working with brokerage accounts, I confirm with the financial advisor if I will be preparing the 1099's for the plan or not. Your advice is basically what I told the financial advisor. Have the son talk to his Dad's accountant to find out for sure if he did or did not claim it as income each year. And if he didn't, then they need to contact a tax attorney. Thanks!

Thanks so much Belgarath! I knew it wasn't subject to the 20% mandatory withholding, due to not being eligible for rollover, but I would have thought the 10% would have been taken, although as you stated, he "could" have elected out of it. Although I'm not sure he elected anything. It sounds like everything was done automatically without any completed forms. I doubt the institution stated anything in writing as to who was responsible for filing the 1099's. The financial advisor tells me that they get a different answer every time they call, depending on who they talk to, and wouldn't swear to it, that during one of those calls they may have been told that the institution would be preparing them. I agree, his biggest issue is going to be the tax consequences on his tax filings. But I didn't know if they would need to generate 1099-R's for the missed 1099-R's or needed to report something to the IRS from a plan compliance standpoint. They were asking for my help in making this compliant, after the fact. Again, thank you!

I received a call from a financial advisor who has a solo-k client. The client has taken his RMD's faithfully for 10 years. The TPA who had the plan was told that the financial institution calculates the RMD and distributes it automatically. They were also told that the financial institution would prepare the 1099-R each year. Fast forward to 10 years later. The plan terminates and the client rolls his assets to an IRA (with the same financial advisor and same financial institution). When the TPA inquired as to the amount of the rollover and confirmation again, that the financial institution would be preparing the 1099-R, they informed them that they found out that there was never a 1099-R issued by the financial institution...ever. I asked if the financial institution withheld federal withholding, and if so, the IRS should have caught it (as they would have received 945 withholding and have nothing to tie it to), but that hopefully it's not as big of an issue as it could be then. They stated that they confirmed that the financial institution never withheld federal withholding. YIKES! So I asked if the client reported the income on his taxes. They stated that they don't believe he did. DOUBLE YIKES! So they asked what would be involved in correcting this. However, the owner is now incapacitated and his son has power of attorney. To be honest, I have no idea how to fix this and how far back we have to go. I have never had this issue. Has anyone had this problem or know what needs to be done, or can direct me to a cite. Thank you so much.

Thanks C.B. Yes, good point and I agree 100%. Unfortunately most have already exceeded that. But even if it is 1% or 2% of their compensation, it's still less than 3%, right?

Thanks C.B. Yeah, I know that if the Key EE's don't contribute or receive any contribution, then the Top-Heavy minimum is zero, but unfortunately, that would be a very very small percentage of clients. (I have only a couple of plans where the Key EE's don't contribute.)

I've been not so patiently waiting for this news! But what about Top Heavy? Are they still on the hook for a Top Heavy minimum? If so, that would provide relief to a very small percentage...those who have a safe harbor plan, but are not Top Heavy...?

Luke, I apologize for not responding sooner, I was on vacation. I agree with not making the contribution based on the penalty amount. Unfortunately, I too, am not privy to the settlement docs. I have requested them, to no avail. Thank you so much for your input Luke. I appreciate it.

I need some guidance as to what someone would do in this situation, or if anyone knows of a cite that they can refer me to. I have a client who was sued (settled 2018) by an employee for vacation pay from 2016. For simplicity, let's say they were awarded $3,500. The client was also ordered to pay a penalty on that amount of say $1,500. The plan is a safe harbor non-elective plan. The client then submitted the 3% SHNE contribution on the $3,500 plus lost earnings on the $3,500. The participant is now asking for the 3% ($45 plus lost earnings) on the $1,500 penalty. Here is what the SPD reads (for the readers digest version)... Does plan compensation include monies paid to me during an absence or after my employment ends? Usually, only the amounts paid to you while you are an employee are considered plan compensation (described above). However, the plan may consider certain types of pay as plan compensation, though paid during an absence or after you leave employment. If you are totally and permanently disabled, compensation under your plan will not include disability related salary continuation payments. Payments you receive after terminating employment might be considered plan compensation, if they meet the definition of "post-severance compensation. "To be considered post-severance compensation, the payment must be one that you would have received had employment continued, such as your salary or wages. Post-severance compensation does not include severance pay, or other amounts you receive only because your employment ended. To be included in plan compensation, post-severance compensation must be paid to you by the later of the end of the limitation year in which your employment ends, or within 2-1/2 months after the date your employment ends. Payments for unused accrued sick, vacation, or other leave that you would have been able to use if your employment had continued are not included in your plan's post-severance compensation. Thoughts? The debates here, are several...1) She should not have gotten the SHNE on the vacation pay to begin with. 2) Vacation pay could be considered post-severance compensation (as she would have received it, had she not terminated), but the last paragraph kind of negates that. 3) None of it was paid within 2-1/2 months after employment ended. Thanks in advance!

Ahh, thanks Lou! Oh wise Cynic...I just got the email that the LLC is "dentistry". You were right, they HAVE to be an ASG. All bets are off then, right? (No reason to have separate plans, since they have to cover.)

That's exactly my concern too, Lou. I don't think you are being cynical. I think you've been in this business long enough to know the shenanagans that some owners try to pull...lol. I did think they would be subject to a combined 415 limit though.

Agree Lou. I am assuming it's not an affiliated service group...that they have a joint venture in something else, but I'm still waiting for confirmation on that from the CPA.

A CPA just sent this question to me. None of these are my clients, so this is all of the information that I have... Maybe my brain is just fried, or maybe I'm confused, but I can't wrap my head around this one (and I'm not a CPA). If the profits flow through to the corps, and the docs are paid through the corps, where is the income from the LLC (to even have a 401(k))? But assuming there is income from the LLC, my quick response would be "yes" that the doc(s) could have separate SEP's for the corps. But would the combined limit apply? Again, my quick response would have been "yes" (since each have ownership in both). Then I thought, why would they want to? The only reason I could think of, that they would want a separate SEP in addition to the 401(k), would be to have a deductibile contribution for one company (Corp), but not the other (LLC)...? I don't know if they have employees, or if it would matter, but I would assume that they do. Any input would be greatly appreciated. Thanks!

Thanks Gilmore!